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Shorting Stock: This is a legal and honorable method of investing.
Suppose a share of IBM stock is trading at $90, but I expect IBM to go down.
I “short” it. This means that, through my broker, I borrow a share of IBM,
sell it in the open market, and collect $90. Assume that IBM then drops from
$90 to $50. That is as low as I think it is going to go, so I “cover” my short: I
take $50 of the $90 that I collected, I buy a share out in the market, and
return it (through my broker) to the person who loaned me a share in the first
place. I am left with $40 profit.

My questions are does someone actually buy the borrowed stock at $90. Is this the stock that was FTDed? Or was the stock loaned sold and never returned?

I have no problem with shorting stocks. Its naked shorting which is a MAJOR problem.

Naked Short Selling causes a unnatural drop in share price by artificially boosting the supply of shares available to the market. This reduces market efficiency. Companies who are doing a stock offering will have to issue more shares to raise the same amount of cash. Naked short selling can threaten the stability of stock prices because stocks can be sold without having to first aquire them from existing owners. Also, present naked shorting rules allow brokerages to make large profits doing "bona-fide market making" while stock markets are falling. Since retail investors are not allowed to do naked shorting, this presents an unfairness or uneven playing field.